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IN THE HIGH COURT OF THE REPUBLIC OF SINGAPORE

HC/OS 73/2020 IN THE MATTER OF Section 211B of the Companies Act (Cap. 50)

And

In the matter of DESIGN STUDIO GROUP LTD.

(Singapore UEN No. 199401553D)

DESIGN STUDIO GROUP LTD.

(Singapore UEN No. 199401553D)

... Applicant

AFFIDAVIT

I, LUKE FURLER (Holder of Singapore FIN No. G5487201T), care of 8 Sungei Kadut

Crescent Singapore 728682, do solemnly and sincerely make oath/affirm and state as follows:

A. INTRODUCTION

1. I am the Chief Restructuring Officer of DSG Group. I am also a partner of AJCapital

Advisory (“AJCapital”), a corporate advisory firm that was appointed by DSG Group to

assist them in assessing its financial position and reorganization of its business. As a result

of my appointment and my firm’s appointment, I have intimate knowledge about DSG

Group’s financial position, business and reorganization plans.

2. I am duly authorised to make this affidavit on behalf of (i) Design Studio Group Ltd.

(formerly known as Design Studio Furniture Manufacturer Ltd.) (“DSGL”), (ii) DSG

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Projects Singapore Pte. Ltd. (“DSGP”), (iii) DSG Manufacturing Singapore Pte. Ltd.

(“DSGM”), (iv) DSG Asia Holdings Pte. Ltd. (“DSGAH”), (v) Design Studio Asia Pte.

Ltd. (“DSA”), and (vi) Design Studio (China) Pte. Ltd. (“DSC”). Where the context

requires, I will also refer to DSC, DSGL, DSGP, DSGM, DSGAH, and DSA individually

as an “Applicant”, and collectively as the “DSG Singapore Group” or the “Applicants”.

3. Unless otherwise stated, the facts deposed to herein are within my personal knowledge,

which I believe to be true. Insofar as the facts deposed to herein are not within my personal

knowledge, they are true to the best of my information and belief.

4. Where applicable, I will adopt the abbreviations and meanings ascribed thereto as set out

in my 1st Affidavit filed on 20 January 2020 (the “LF 1st Affidavit”).

5. I make this supplemental affidavit pursuant to the directions given by this Honourable

Court on 23 January 2020, that the Applicants provide further information regarding the

potential scheme of arrangement or compromise, if this has not been done in the LF 1st

Affidavit.

6. In this supplemental affidavit, I will:

6.1 First, set out the steps taken by the management of the Applicants to date in the

restructuring of the DSG Group;

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6.2 Second, set out a brief description of the intended scheme of arrangement and

compromise pursuant to section 211B(4)(b) of the Act (the “Scheme”, which is to

incorporate the formal restructuring proposal herein, the “Proposal”); and

6.3 Third, set out the steps that the management intend to take in the coming months

to negotiate the terms of, and implement, the intended Scheme.

B. STEPS TAKEN THUS FAR IN THE RESTRUCTURING

8. I repeat paragraphs 6 to 50 of the LF 1st Affidavit, where I had set out the facts and

circumstances leading to the present applications by the Applicants pursuant to section

211B(1) of the Act (the “Singapore Applications”).

Malaysia Judicial Management

9. On 20 January 2020, three (3) of DSGL’s wholly-owned Malaysia-incorporated

subsidiaries, being DS Project Management Sdn Bhd (“DS Project Management”), DSG

Manufacturing Malaysia Sdn Bhd (“DSG Manufacturing”) and DSG Projects Malaysia

Sdn Bhd (“DSG Projects”) filed court applications in Malaysia to be placed under the

judicial management of a judicial manager pursuant to section 405 of the Malaysian

Companies Act 2016 (the “Malaysia Applications”). DS Project Management and DSG

Manufacturing each made an application to the High Court of Malaysia at Johor Bahru,

while DSG Projects made an application to the High Court of Malaysia at Shah Alam.

Suspension of Trading on SGX-ST

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10. In light of the Singapore Applications and Malaysia Applications, DSGL has requested a

voluntary trading suspension of its shares listed on the SGX-ST in order to protect the

interests of each stakeholder group, and to avoid a situation where trading in such shares

may occur in the absence of complete information during the ongoing restructuring

process.

Rescue Financing

11. The management of the Applicants are in discussions with DSGL’s major shareholder,

Depa United Group PJSC (“DEPA”) and other stakeholders including existing creditors

and other third party financiers to raise rescue financing of up to S$20,000,000 (the

“Rescue Financiers”) in the form of a rescue financing pursuant to section 211E(1)(b) or

in the alternative, section 211E(1)(a) of the Act (the “Rescue Financing”).

12. However, the Rescue Financing discussions are premised on the assumption that the

Applicants will continue to enjoy the protection of the Moratorium and will only continue

if the restructuring is conducted as envisaged through a scheme of arrangement. Without

the protection of the Moratorium, it is expected that DEPA, the other stakeholders, and the

potential Rescue Financiers will end these discussions immediately. That will mean that

the DSG Group will not have the necessary working capital to carry on its operations or

the restructuring process.

Working capital needs of the DSG Group

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13. DSGL is also exploring the possibility of the sale of one or more business units and the

sale of certain assets across the DSG Group. At present, DSGL is unable to reveal further

details of these proposed sales as disclosure of such confidential information would

prejudice DSGL’s search for potential buyers and the on-going negotiations. However, the

Applicants intend to continue to engage with investors and will update the Court and its

creditors on any material developments.

14. If the sale of any business unit or asset is completed, the management of the Applicants

intends to employ the sale proceeds towards the working capital needs of the DSG Group

and/or the restructuring process.

Engagement with creditors

15. The management is in discussions with representatives of HSBC in Singapore and Dubai

and the other financiers to the DSG Group to discuss whether they are prepared to resume

the credit facilities, which are fundamental to the DSG Group asguarantee facilities are

required to secure and deliver its projects, and the terms on which they will do so.

16. The preliminary responses from these lenders have been encouraging. I will provide a

further update on the developments in my next affidavit due on 14 February 2020.

17. As mentioned at paragraphs 31 to 33 of the LF 1st Affidavit, HSBC is the sole secured

lender of the Applicants.

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18. I verily believe that HSBC will not be materially prejudiced by the Moratorium for the

following reasons:

18.1 the nature of the security held by HSBC (which are charges over accounts,

contracts and receivables) means that the Moratorium provides an opportunity for

the value of the security to be preserved during the period of the Moratorium; and

18.2 HSBC would achieve a higher rate of return if the Scheme is successful. Under the

terms of the Proposal set out below in paragraphs 21 to 25, the debt of HSBC

remains secured. However, if HSBC was to enforce its security and initiate

proceedings to recover its debt, HSBC’s recovery rate is likely to be low and the

process will be protracted.

19. I also verily believe that the unsecured creditors will not be materially prejudiced by the

Moratorium as the unsecured creditors would achieve a higher rate of return if the Proposal

is successful. Further, the Moratorium allows the Applicants to continue discussions with

potential investors and creditors to develop the Proposalwhich will preserve and maximise

value for the benefit of all stakeholders, including the unsecured creditors. Under the terms

of the Proposal, the unsecured creditors will receive a materially higher return compared

to the amount they would receive in a liquidation scenario. The liquidation scenario is

outlined in paragraph 22 below.

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20. The DSG Group continues to communicate with its unsecured creditors and HSBC with a

view to garnering their support for the Moratorium. I will exhibit the letters of support that

the Applicants have received in my next affidavit due on 14 February 2020.

C. DESCRIPTION OF THE INTENDED SCHEME OF ARRANGEMENT

21. The DSG Group and its advisors are in the course of formulating the Proposal. It is

envisaged that the Proposal may include, but not limited to, the following key initiatives:

21.1 Consolidate or realise business units of the DSG Group.

Currently, the DSG Group operates in eight (8) jurisdictions (Singapore, Malaysia,

Thailand, China, Vietnam, Myanmar, Sri Lanka and United Arab Emirates). The

Proposal will properly consider consolidating the offices of the DSG Group in key

markets to save cost, achieve economies of scale, and extract value from non-core

business units.

21.2 Recalibrate focus to core competencies.

Currently, the main sources of revenue within the DSG Group are project

management, fit out and parts manufacturing (the “Core Competencies”). The

Proposal will set out DSG Group’s plan to focus on its Core Competencies and seek

to exit or extract value from non-core and/or non-profitable revenue streams for the

benefit of stakeholders.

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21.3 Cost reduction and implementing efficient and tangible cost monitoring measures.

The Proposal will also address cost reduction and cost monitoring measures. This

may include, but is not limited to:

i costs savings from initiatives described in this paragraph 21;

ii pursuing headcount reduction opportunities, without affecting DSG

Group’s high-quality work output and project completion timeliness;

iii assessing and recalibrating the approach to the project tendering process,

including an overhaul of how projects are costed, planned and executed to

maximise profitability of new projects; and

iv centralising finance, payment and other key corporate functions to minimize

duplication, and to maximise the efficient use of resources.

21.4 Leverage parent companies’ financial support, operational expertise and contact

network to cultivate new clients.

The Proposal will likely set out potential additional financial and operational

support from DSG Group’s parent, DEPA. As stated in paragraph 20 of the LF 1st

Affidavit, DEPA provided a AED20 million loan to DSGL on 29 November 2019,

of which AED10 million has been utilized for general working capital purposes

within the DSG Group.

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21.5 Revise existing corporate structure.

The Proposal may set out a restructuring of the existing corporate structure of the

DSG Group. The new structure will ensure the “re-emerged” DSG Group is leaner,

more agile with a compeititve cost base and in a better position to serve clients in

its core markets.

22. Liquidation Analysis

In the event that a successful restructuring via the Scheme cannot be achieved, the DSG

Singapore Group will not be in position to continue as a going concern in the short term

unless substantial funding can be sourced. I consider it highly unlikely, based on

commercial realities, that any party would provide the funding required outside of the

Scheme. If sufficient funds cannot be sourced, the DSG Singapore Group will have little

option but to be wound up in liquidation proceedings.

23. In the event of a liquidation, recovery for: (i) unsecured creditors of the DSG Singapore

Group is likely to be nil, and (ii) HSBC as the sole secured lender to the DSG Singapore

Group is unlikely to be able to recover its full exposure.

24. The above liquidation analysis is based on the following assumptions:

24.1 The majority of the value within the DSG Group is in its floating assets, being its

receivables and work in progress. A liquidation of the DSG Singapore Group would

be considered an event of default under most, if not all, existing contracts. As such,

it is not unreasonable to expect that almost all existing clients will terminate the

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remaining contracts on the assumption that the DSG Singapore Group would be

unable to fulfill the terms of the existing contracts. In this scenario, the value of

such floating assets would be minimal as clients would likely seek available

remedies such as set-off and claims for liquidated damages.

24.2 If the DSG Group is forced into liquidation, it is highly probable that receipts from

existing projects will be significantly impaired, with an estimated recovery rate

severely diminished for the reasons described in paragraph 24.1 above.

24.3 The estimated recovery from other assets of the DSG Group, such as inventory and

plant and equipment are expected to be minimal given their age, condition and the

fact that the assets are being realised within a liquidation scenario.

24.4 In parallel with the termination of contracts with the DSG Singapore Group, clients

are expected to exercise their rights under contracts to call on project performance

bonds and similar instruments issued by the lenders to the DSG Group, namely

HSBC and OCBC in Singapore, and UOB in Malaysia (together, the “Lenders”).

As a result, the contingent liabilities of the DSG Group owing to the Lenders will

crystallise. Based on current information available, the aggregate value of

contingent liabilities expected to crystallize in the event of the winding up of the

DSG Group is S$35,687,240, represented by:

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Bank Guarantees & Similar Issued by DSG’s Lenders

Face Value

(SGD)

HSBC 29,100,958

OCBC 4,067,702

UOB (Malaysia) – corporate guarantee

2,518,580

Total 35,687,240

24.5 Other contingent liabilities, and off-balance sheet items of the DSG Group such as

accrued employee entitlements, will also crystallise in the event of liquidation.

24.6 In the event of liquidation, DSGP is liable to pay HSBC any residual sums owing

to DSGP from certain key contracts and receivables in connection with the HSBC

Security Deed. Further details of this HSBC Security Deed are in paragraph 31 of

the LF 1st Affidavit.

25. In addition to the above, a liquidation of the DSG Group will likely lead to a closure of all

its subsidiaries and consequently, the termination of all employees. In this scenario, more

than 600 employees would have their employment terminated and, based on our

preliminary analysis, are unlikely to receive their full employee entitlements.

26. Based on the above analysis, it is envisaged that creditors of all classes and more than 600

employees will be significantly worse off under the liquidation scenario as opposed to the

restructuring of the DSG Group in accordance with the Proposal.

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D. STEPS TO IMPLEMENT THE RESTRUCTURING

27. The Applicants have applied for a moratorium period of six (6) months from the date of

the Singapore Applications (which were filed on 20 January 2020). If this Honourable

Court does grant the Moratorium at the hearing scheduled for 19 February 2020, the

Applicants effectively have five (5) months of protection under the Moratorium from that

date.

28. I verily believe that an optimistic timeline for the restructuring, including the timeline for

the court application to convene a creditors’ meeting pursuant to section 210(1) of the Act,

will be as follows:

S/N Description Indicative

Timeline

1. Negotiations on the key terms of the Scheme, which

would include, inter alia, the following concurrent

steps:

(a) DSG Group to negotiate delivery of its existing

project obligations, including agreement for

ongoing support from its clients and supply

chain;

(b) DSG Group to obtain assurances from the

HSBC;

(c) DSG Group to seek to obtain rescue financing;

(d) AJCapital to continue to verify whether the

Proposal is feasible based on the financial

February 2020 –

March 2020

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projections and to propose the necessary

amendments; and

(e) HSBC, unsecured creditors and DSG Group to

negotiate and discuss the preliminary key terms

of the Proposal.

2. Binding term sheet to be signed by HSBC, unsecured

creditors, and DSG Group.

April 2020

3. Detailed terms of the Scheme are to be negotiated with

HSBC and unsecured creditors.

end April 2020

4. Terms of the Scheme are to be finalised and the section

210(1) application to be made to convene a meeting of

creditors.

May 2020

5. Disclosure of information necessary to convene the

Scheme meeting. Filing and adjudication of proof of

debts to be undertaken.

May/June 2020

6. Scheme meeting and filing of court sanction application. mid June 2020

7. Court sanction hearing. mid June 2020

29. Looking at this projected timeline of events, the Applicants are on a tight leash to negotiate

and finalise the terms of the intended Scheme, and make the section 210(1) application in

the next three (3) to four (4) months.

30. The Applicants and their advisors are also cognisant of the ability of the DSG Group to

continue to win new projects may be impacted during this period as potential clients will

likely prefer their competitors which are not subject to such restructuring proceedings.

Accordingly, it is recognised, that the restructuring of the DSG Group needs to occur on

an accelerated timetable to ensure that the DSG Group quickly reemerges having benefitted

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from the Proposal and is positioned to bid and secure new projects for its ongoing viability

following the restructuring process.

31. The Applicants are working hard with their advisors to propose the Scheme. At this

juncture, however, I must caveat that whether the Applicants can meet the projected

timeline is dependent on the cooperation of the various stakeholders. Notwithstanding that

this is the timeline that the Applicants are working towards, there are many factors which

remain out of the Applicants’ control. In particular, the cross-border elements in this

restructuring mean that the co-ordination of the negotiations are complex and time-

consuming. As noted, the DSG Group has subsidiaries operating out of eight (8)

jurisdictions: Singapore, Malaysia, Thailand, Vietnam, Sri Lanka, Myanmar, China, and

United Arab Emirates.

E. CONCLUSION

32. In light of the above, the Applicants humbly request that this Honourable Court grant the

moratorium orders sought by the Applicants.

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SWORN/AFFIRMED BY ) the abovenamed LUKE FURLER ) in Singapore on ) this day of 2020 )

Before me,

A COMMISSIONER FOR OATHS

This Affidavit is filed on behalf of the Applicant.

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